Profitability increased through high capacity utilization
Strong yet occasionally volatile market demand led to good overall utilization of production capacities. Phases of high utilization as well as targeted, forward-looking cost management resulted in a record-high operating profit (EBIT) of CHF 301.7 million and an EBIT margin of 15.9% of net sales (PY 13.3%). At CHF 248.0 million (PY CHF 184.8 million), net income corresponds to 13.1% of net sales.
The positive development of the operating profitability resulted in a Return on Capital Employed (ROCE) of 26.1%. The equity ratio was further improved to 78.9%.
Expertise and skills preserved
The SFS Group had 10,509 employees (full-time equivalents) at the end of 2021 (PY 10,692). This largely stable development is an expression of the long-term “local for local” strategy with robust, efficient supply chains as well as the decision to nearly exclusively make temporary adjustments to production capacities during the now two-year pandemic. Doing so enabled SFS to largely maintain its ability to fill customer orders despite challenges presented by material availability and occasionally long delivery times and benefit from the dynamic market conditions that prevailed during the period under review.
Engineered Components (EC)
Characterized by pent-up demand in automotive-related areas and industrial sectors
The EC segment, which is geared toward industrial applications, benefited substantially from the recovery that began in the wake of the COVID-related slump of the 2020 financial year. This recovery followed different patterns depending on the end market. In the Automotive industry, the good development of the first half of 2021 was slowed down with beginning of the summer months by bottlenecks in the semiconductor supply chain. While the development in the various industrial niche markets served by the Industrial division exhibited a similar pattern, it was delayed and without a material impact from supply chain bottlenecks. The Aircraft business lingered at a low level but started showing initial signs of a recovery toward the end of the year. The Electronics division profited from a persistently positive market environment that was, however, also hit by semiconductor scarcity in the second half. Demand in the Medical division followed an upward trend.
Overall, the segment generated sales of CHF 975.2 million, representing growth of 8.6% compared to the same period of the previous year. In addition to our customers’ supply chain bottlenecks mentioned above, the strong baseline effect is another factor that contributed to the declining growth rate during the second half of the year. Sales growth was almost exclusively organic in nature; foreign currency and consolidation effects only had minor impacts of –0.5% and +1.2%, respectively.
The good demand situation resulted in a high overall level of capacity utilization that was beneficial for the EC segment’s profitability. The EBIT margin rose by 160 basis points and amounts to 17.1% for the 2021 financial year, which is on a par with the pre-COVID level. Supply chain bottlenecks resulted in a lower utilization of capacities during the second half of 2021, which then caused the EBIT margin to contract slightly.
Fastening Systems (FS)
Dynamic market situation throughout the entire year
The exceptional demand situation that the Fastening Systems segment had already successfully leveraged in the first half of the reporting period to generate record results continued in the second half of the year. The strong demand resulted in widespread supply shortages on the market, however. Both divisions successfully managed to largely uphold their ability to fill customer orders in this challenging environment.
Robust value chains enabled the Construction division to both serve its existing customers and gain new customers. Through its acquisitions of Jevith A/S (Denmark, as of July 1, 2021) and GLR Fasteners (USA, as of August 1, 2021), the division succeeded in expanding its market access in Europe and the US. Whereas the Riveting division made use of the good demand situation among industrial customers, the business with customers from the automotive industry cooled down substantially over the course of the second half of the year. This was triggered by bottlenecks in the semiconductor supply chain, which impacted OEMs’ production figures and had a delayed impact on call-offs in the division.
In this exceptional environment, the segment generated CHF 574.9 million in sales, which corresponds to a remarkable 17.4% increase over the same period of the previous year. Consolidation effects contributed +0.5% to the reported sales figure and there were minimal currency effects of +0.3%.
Both divisions benefited from a high level of capacity utilization throughout the entire year. Prudent cost and price management enabled the segment to overcome both turbulences attributable to the ongoing pandemic as well as the supply chain disruptions to achieve a record-breaking EBIT margin of 17.4%. This is an extraordinary result that is 5.5 percentage points higher than the EBIT margin for the same period of the previous year.
Distribution & Logistics (D&L)
Good initial situation from first half of year exploited
The Distribution & Logistics segment, which primarily serves customers from the industrial manufacturing and construction industries in Switzerland, grew substantially and achived strong results in the financial year just ended. Thanks to stable demand in all areas of application and good overall availability of materials, the segment’s sales rose by 8.2% year on year to CHF 343.0 million in the period under review. Currency effects added +0.2% to the result. Existing business relationships with prominent customers were expanded and new business with new customers resulted in growth on an even broader basis.
The strong sales growth and prudent management enabled the segment to generate an operating profit (EBIT) of CHF 32.6 million, which corresponds to an EBIT margin of 9.4%.
Internationalization of the D&L segment through inclusion of Hoffmann
The planned inclusion of Hoffmann lends the D&L segment an internationally strong position in the attractive area of quality tools. Hoffmann is a leading international systems partner for quality tools that is well-known on European markets and serves more than 100,000 customers with a product range comprising around 500,000 items. Customers appreciate not only the company’s comprehensive range of products but also its high level of product and logistics expertise, which will be strengthened even further through the commissioning of the new LogisticCity in Nuremberg (Germany), Europe’s most high-performance logistics center for quality tools. The transaction is subject to the usual closing conditions. It is expected to be concluded in the first half of 2022.
Strong competitive position lays foundation for future growth
SFS focuses on innovation trends that once again proved robust in the 2021 financial year. The segments’ strong competitive edge enabled important new project acquisitions and market share gains, which in turn lay the foundation for future growth. With respect to the manufacturing of assemblies for electric brake systems for the automotive industry, for example, cooperation was intensified with the major Tier-1 suppliers in the US and Europe.
Growth-related expenditure on property, plant, equipment, hardware and software amounted to CHF 121.4 million (PY CHF 104.1 million) in the period under review. This was driven by the construction of the new production hall in Heerbrugg (Switzerland) for the Automotive division, ongoing efforts to switch to S/4HANA (the new generation ERP system), the strong commitment to cybersecurity and other project-specific investments. The additional production hall will offer the capacity required for manufacturing assemblies for electric brake systems. Construction work is proceeding on schedule and commissioning will take place in the third quarter of 2022. Current projects, including those acquired in 2021, will already lead to the utilization of some two-thirds of the building capacities under construction.
Preparations for the announced expansion of the location in Nantong (China) are proceeding according to schedule and construction will begin in 2022. The expansion will increase the location’s production area by around 70% and be available for use by the Electronics, Automotive, Industrial, Riveting, Medical and Distribution & Logistics divisions in late 2023 to implement their growth projects. The expansion of the location in Hallau (Switzerland) for the Industrial and Medical divisions was completed on schedule and successfully put into operation. An existing production hall in the immediate vicinity of the Unisteel Malaysia site in Johor Bahru (Malaysia) was purchased to facilitate the new projects expected in the areas of Hard Disk Drives and Medical.
Expenditure on research and development amounted to CHF 45.6 million (PY CHF 44.5 million) and was charged in full to the income statement for the period.
Sustainability is a strategic priority
Sustainability is important to us! Embracing a sustainable mindset and practices gives us a chance to re-examine our products and processes on a daily basis and improve them continuously for the good of all stakeholders. As a value engineering specialist, working with our customers to develop sustainable products and solutions gives us a multitude of opportunities to utilize our expertise and offer our customers lasting added value – in keeping with our corporate principle of “Inventing success together”.
Important steps were taken and progress made again in the 2021 financial year.